Commodity Corner

Views on commodities and energy

Mother Nature back in the game

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northeastern-iowa-20092Mother Nature is making her seasonal appearance in Chicago Board of Trade markets and will be one of the big price drivers this week for grains. 
    
Planting time for corn is approaching in the Midwest and winter wheat, dormant since autumn, is reviving for a sprint to early summer maturity. But a freeze is forecast for the heart of the U.S. hard red winter wheat belt this weekend. In addition, the Red River Valley in eastern North Dakota, the heart of the spring-planted wheat belt, remains at risk of more flooding this month. 
    
The heart of the Corn Belt — Iowa and Illinois — could also be hit by a blizzard early this week, pushing back spring field work and delaying corn planting. Soy is planted later. 
   
“First, on Monday we’ll see a little bit of reaction to the weather that occurred over the weekend. We are especially going to watch potential frost freeze on Monday morning including the Delta and hard red winter wheat areas,” said analyst Terry Reilly at Citigroup in Chicago. 
    
Temperatures could dip into the low 20s degrees Fahrenheit in southern wheat regions such as the Delta soft red winter wheat fields of Mississippi and Arkansas, raising fears about “winterkill” damage to wheat and eventual yield loss. Still, wheat is a hardy grass and the season is still young. But any weather jitters could spur speculative buying and add to last week’s rallies.
    
On Friday, CBOT corn for May delivery <CK9> closed 4 percent higher on the week at $4.04-1/2 a bushel. May wheat <WK9> ended at $5.63-1/2, up 11 percent for the week, while May soybeans <SK9> rose 9 percent to $9.95-1/2. 
   
Part of that bounce in grains, especially soybeans, was due to the government’s U.S. shock planting estimates on Tuesday. The U.S. Department of Agriculture pegged soy plantings at 76 million acres, 3.6 million fewer than analysts expected. U.S. corn seedings were also forecast higher than expected at about 85 million, compared with 86 million a year ago. 
   
Each session after the report, soybean prices gained on corn with the price ratio between new-crop November soy and December corn closing at 2.12-to-1 on Friday — a big jump from a week earlier when it closed at 2.05-to-1. 
   
Historically, a ratio under 2.2-to-1 usually encourages corn seedings, while anything above tends to favor soybeans. 
   
“The cold, wet weather is underpinning corn. But it didn’t give it much of a lift,” said one CBOT floor broker. 
   
Some key areas of the Midwest have seen 200 percent of normal precipitation and remain too chilly to plant corn. Farmers like to wait for soil temperatures to reach 55 degrees (F) before planting. So far that zone is only as far north as Texas, eastward into the Delta region. 
   
USDA usually starts reporting U.S. corn planting progress by the second week of April, when 5 percent to 7 percent is seeded. But the agency will release its first crop progress update on Monday afternoon, with winter wheat conditions a key focus. 
   
“We are looking for above-average ratings for soft red winter wheat and white winter wheat, but below average for ratings for hard red winter,” Reilly said. 
   
Aside from the crop weather and daily conditions, outside markets will still play a role in grains — Wall Street stocks, crude oil and the dollar are keenly watched as touchstones that could point to economic recovery and, thus, potential demand. The fourth-straight weekly advance on Wall Street, with Dow Jones industrial average surpassing 8,000 on Friday — closing up 39 points at 8,017 — definitely buoyed commodity trader morale. 
   
“We did see some active fund buying (last) week,” said grains analyst Shawn McCambridge with Prudential Bache Commodities, who pointed to talk of money finally coming off the sidelines. 
Also of interest will be USDA’s monthly world supply-demand report due on Thursday morning. Traders will zero in as usual on projected end-season stockpiles, especially for soybean stocks this autumn given the smaller-than-expected March 1 U.S. soy stocks data that USDA reported last week.

Photo: Northeastern Iowa crop field taken by Christine Stebbins in late March. The region was hit by spring blizzard on Sunday, dashing farmers’ hopes of an early planting season.

from Environment Forum:

What a difference a year makes – Valero embraces corn ethanol

At last year's American Petroleum Institute conference, Bill Klesse, CEO of leading U.S. oil refiner Valero, slammed federal policymakers who push subsidies and mandates for production of ethanol, saying that using corn to make it would make food so expensive it would cause more misery than global warming.

"All of these programs are just a huge transfer of wealth from our industry (oil) to the Midwest farms," Klesse said in March 2008 speech.

Floating a balloon, adding to global warming?

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climatebillDemocrats floated big plans to tackle climate change proposals in the U.S. Congress this week but realistically there will be much more hot air — both from industry and politicians — before this bill is turned into law.
 
The draft legislation, running hundreds of pages, will now be considered by the House Energy and Commerce Committee in coming weeks along with all manner of panels. And, oh yes, the Senate, home of the filibuster, will also get to weigh in.
    
At the heart of of the legislation is Cap and Trade — a panacea for those who believe greenhouse gas emissions are warming the planet to dangerous levels and a boon to those who think the sinking economy makes this the dumbest time to anchor industry with more costs.
    
“This legislation will create millions of clean energy jobs, put America on the path to energy independence, and cut global warming pollution,” said House Energy and Commerce Committee Chairman Henry Waxman.
    
Sounds good but Waxman is a Democrat from California, where these ideas are more readily embraced.  
    
Listen to what a guy from Texas thinks: “Tuesday’s cap and trade bill marks a triumph of fear over good sense and science and it couldn’t come at a worse time because it proposes to save the planet by sacrificing the economy,” said Representative Joe Barton, the senior Republican on the energy and commerce panel.
 
In a cap and trade system, power plants and other industries would need permits for every ton of carbon dioxide they emit. Unused permits could be sold to other companies, but overall emissions would gradually drop.
    
Under the proposal that uses 2005 as a base year, U.S. carbon emissions would have to be reduced by 20 percent by 2020, 42 percent by 2030 and 83 percent by 2050. Those goals are a tad more aggressive than what President Barack Obama had proposed.
    
Now let the games begin. Very few seem ready to predict when a climate change bill will pass but most say it won’t be this year — especially if Democrats in Congress decide to give Obama’s health care plans the priority.
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So there certainly will be a lot more talk, much of it heated. And one other thing is for certain: each yearly delay will mean the United States, as the world’s largest emitter, will spew another 6 billion tonnes of carbon dioxide into the atmosphere.

For more Environment News, click here.

Photo Credit: Reuters/Eric Thayer (The Empire State building in New York turned off its lights on March 28 at 8:30 pm local time, joining homes, office towers and landmarks in more than 80 countries that signed up for Earth Hour to raise awareness about climate change); Reuters/Chris Baltimore (An aerial photograph of a power plant in Georgia)

South American LNG Terminals

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The above map shows South America’s LNG import terminals ahead of the coming Southern Hemisphere winter, including Chile’s Quintero terminal, which is expected online in June. (Click on individual terminals for details)

South America’s nascent import capacity will add a new dynamic to the Atlantic Basin market, drawing LNG counter-seasonally when demand in the Northern Hemisphere wanes during summer.

Arclights on U.S. plantings data

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By K.T. Arasu 
Investors will zero in this week on arguably the most important crop report of the year when the U.S. government forecasts how much corn and soybeans farmers will sow this spring across the country. 
   
The report is expected to project more plantings of soy and less of corn than in 2008, based on the U.S. Agriculture Department’s survey of about 86,000 farmers in March, a month before seedings begin in the Midwest grain belt. 
   
The Prospective Plantings report is eagerly awaited on grain markets and by investors in farm equipment companies, livestock producers, grain transporters or makers of products ranging from bread and pasta to ethanol. 
   
“I have been getting so many calls from the investing community because it affects so many other business that are associated with the farm sector,” said grains analyst Joe Victor of brokerage and research company Allendale Inc. 
   
The data will not be the only market driver this week. Investors will be also be checking the pulse of the economy for any signs of an uptick on Wall Street as global grain demand slips in the face of consumers recoiling from the recession. 
   
Farmers in Argentina, which competes with the United States in the world grain export market, will end a week-long boycott of selling grains on Friday and the market is anxious to know the next course of action in fighting higher export taxes. 
   
There have been mixed signals from Mother Nature. Floods in the upper reaches of the United States bordering Canada are threatening the seeding of spring wheat in about 500,000 acres, but southern Plains wheat areas are getting much-need rains. 
   
Investors have a full plate of factors to chew through this week, but the main focus will be on the USDA report. 
   
Analysts polled by Reuters expected farmers to plant 84.3 million acres of corn this year, down from 86 million last year. They were expecting 79.8 million acres to be seeded with soybeans, up from 75.7 million in 2008. [ID:nN26500623] 
   
USDA will update on June 30 after another survey in June when most of the planting is usually complete. 
   
BEARISH FOR SOYBEANS? 
Grains analyst Bill Nelson of Doane Advisory Services said the report could be bearish for soybeans. 
   
“If beans come in in the 79 (million) to 80 million range, with normal yields, it will be fundamentally bearish,” he said, adding that there was a cloud over demand as the United States was not expected to come out of the recession until perhaps 2010. 
   
“Chick placements are down 6-7-8 percent week after week because demand is lagging,” he said, referring to the number of chicks that are placed each week with flocks that grow into meat-producing chickens. 
   
Analyst Charlie Sernatinger of Fortis Clearing Americas said the USDA report could take the market by surprise if the department’s forecast for corn acres comes in at fewer than 84 million acres, and that for soy exceeds 80 million. 
   
The United States is the world’s largest exporter of corn and soybeans — both used to produce animal feed and the renewable biofuels ethanol and biodiesel. So USDA crop estimates for the United States are closely monitored around the world for price implications. 
   
The report comes at a time when overall trade volumes are expected to fall 9 percent this year, the largest contraction since World War Two, as demand collapses in the worst economic downturn in decades, the World Trade Organization said. 
   
“The real dilemma surrounding the pricing of the 2009 crop is associated with determining value in a rapidly changing economic environment,” MF Global analyst Rich Feltes wrote in a report to clients last week. 
   
“Is economic recovery and demand strength eminent? Is the economy headed for a period of rapid inflation and how would that influence soybean prices?” he asked. 
   
In a 20-year period, USDA’s prospective plantings estimates had been below the final estimate eight times and above 12 times for corn — from the smallest difference of 153,000 acres to the largest of 3.84 million, according to the USDA. 
   
For soybeans, USDA’s estimate was 12 times below the final estimate, and above eight times. The smallest difference was 25,000 acres, while the biggest was 3.5 million acres. 
   
Chicago Board of Trade May soybeans <Sc1> closed 3.6 percent lower for the week at $9.17 a bushel. May corn <Cc1> fell 2.4 percent to $3.87 and May wheat <Wc1> slumped 7.8 percent to $5.07-1/4.

A food czar could bring sexy back to agriculture

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It seems if you got a problem in Washington today, you need a Czar to take care of it. And now some powerful U.S. senators believe the agriculture sector should get one to sharpen efforts to feed the world’s poor.
    
foodaid3Former Agriculture Secretary Dan Glickman told lawmakers on Tuesday that too often agriculture takes a back seat to other “sexier” issues in policymaking, but it must be a priority if the country hopes to address global hunger and malnutrition.
 
“It is not a secondary factor,” Glickman said before the Senate Foreign Relations Committee.
 
Senator Dick Lugar, the Republican leader of the committee, supported appointing a White House food coordinator to take on raising agriculture and food aid’s prominence.
    
This “food czar” would be tasked with coordinating efforts between the U.S. Agency for International Development, the U.S. Department of Agriculture and other agencies involved in food aid and agriculture production.
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The need for a food czar doesn’t seem as far stretched when considering recent events that have nudged agriculture over into the realm of a national security issue.
    
Soaring food prices last year sparked food riots and led to political instability in some parts of the world. The threat of violence and coups continues as the recession makes it increasingly difficult for even more people to buy food.
    
A food czar could possibly mitigate future riots by improving the United States’ role in making other nations self-sufficient in agricultural production, an area some say the country has failed in. 
 foodaid2  
In fact, U.S. efforts to address the long-term challenge of persistant malnutrition earn an ‘F,’ according to political science professor and author Robert Paarlberg.
 
He said U.S. agriculture assistance to Africa has plummeted 85 percent since the 1980s. “So as things have been getting steadily worse in Africa, the United States goverment has curiously been doing steadily less,” Paarlberg said.
 
A food czar, Lugar said, would have the difficult job of addressing this conundrum.

Photo Credit: Reuters/Luc Gnago (Farmers in Cote d’Ivoire work on a rice field); Reuters/Alberto Lowe (Riot police clash with Panamanians over food prices in Panama City); Reuters/Margaret Aguirre (A child in Ethiopia is severely malnourished due to widespread starvation brought on by drought and soaring food prices)

Chartists say base metals in bear market rally, for now

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After the Federal Reserve said last week it would buy about $1 trillion of long-term U.S. debt, copper rallied to price levels seen in November.  Other base metals followed higher. 

copper_daily_2009

Technical analysts at RBC Capital Markets referred to current metal action as “jobbers markets and not trends,” warning bulls “to beware of getting married to their positions in these choppy and uncertain times.” Others chartists said they were looking for confirmation of the price rally from demand indicators and would not recommend buying metals until the had clearly turned bullish.

U.S. oil drilling slumps, domestic production at risk

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A slump in U.S. oil drilling activity due largely to weak prices could thwart the Obama administration’s goal of cutting crude imports by putting a dent in future production, analysts have said.  Below are graphs showing the decline in the number of rigs actively drilling for oil.

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rigs_2

Farm fight gives Argentine newspapers plenty to chew on

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cristina

Argentine farmers’ decision to resume their anti-government protests dominated Sunday’s newspaper editorials, with some commentators saying the seemingly never-ending conflict over soy taxes risked spilling into political turmoil and even violence (Joaquin Morales Sola in right-leaning La Nacion).

Most agreed the conflict’s resurgence was down to last week’s surprise announcement by President Cristina Fernandez to share the soy tax revenue with the provinces, which critics see as an election ploy ahead of a mid-term vote due in June. Farmers took as proof she is unwilling to lower the levy.

Politics, dollar elbow into CBOT grain markets

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Grain markets will keep an eye on spring planting intentions in the United States, the world’s largest exporter, in the coming week but the dollar and politics have also jumped back into the markets as a surprise.
    
Grains were led higher by soybeans this week, rebounding after corn gained the previous week on seeding expectations. But U.S. government moves to shore up debt markets and also Argentine politics came back into the mix, adding a lot of juice to bullish grain buyers. Chicago Board of Trade May soybeans ended 8.6 percent higher for the week at $9.52 a bushel, while May corn gained 2 percent ending at $3.96-1/2. CBOT May wheat closed at $5.50-1/4, up 6 percent on the week.
 
The weaker dollar was a big trigger, as a falling greenback makes all U.S. commodities cheaper to overseas buyers. The dollar notched its biggest weekly plunge against a basket of currencies since 1985 after the U.S. Federal Reserve announced on Wednesday it will spend more than $1 trillion to buy mortgage and U.S. Treasury securities to boost the economy. U.S. Treasury yields dove on the news and investors, also wary of inflation, dumped the dollar. 
 
One key to the 2008 commodities rally, which saw record grain prices into the summer, was the sliding dollar. As the currency began turning around in July 2008, as grains hit multi-year highs, commodities began a long descent.  
    
“This week has showed us the extent to which we are tied to the financial markets,” said Rich Feltes, director of MF Global Research in Chicago. “It’s not just the grain fundamentals. It is the political landscape — what’s going on in terms of Congressional and Fed actions, Argentine government policy — all of these things are impacting our markets right now.
    
“Whether or not the dollar adjustment has essentially run its course will be an important factor,” Feltes said.
    
Another outside factor last week was Argentina, the number 3 soybean exporter and number one shipper of soybean meal.
    
A squabble between Argentine farmers and their government over a soy export tax threatened to disrupt shipments there as farmers decided to halt sales of grains and livestock for seven days beginning Saturday, further dimming hopes for any quick resolution to the conflict.
    
“Seven days will not cause too much excitement but the uncertainty that it could become longer would be supportive for spreads,” said Mario Balletto, Citigroup analyst in Chicago.
    
China, the biggest soy buyer, has noticed. The U.S. Department of Agriculture on Friday said U.S. exporters sold a fresh 165,000 metric tons of soybeans to China on Thursday, of which 55,000 was for 2008/09 shipment.
    
MEANWHILE, U.S. SPRING PLANTING NEARS
If the dollar and politics in the U.S. and Argentina have been a powerful distraction, grain traders also remain tightly fixed on the basic supply fundamentals: spring planting.
    
A tussle between corn and soybeans continues for more than 160 million acres in the United States that will be seeded in the next two months — and end up supplying half of world corn exports and one-third of soybean export shipments.
    
The markets await the March 31 USDA annual planting intentions report, the first official word on what farmers intend to plant this spring based on actual farmer surveys.
    
As of Friday many grain analysts still thought U.S. farmers will seed a couple million fewer corn acres than the 86 million planted last spring, while soybean acres could be up as much as 5 million from the 75.7 million planted in 2008.
    
A wild card remains cost of fertilizer, which is much more essential to good corn yields than beans, a legume. Nitrogen fertilizer in the Midwest is running about $600 to $750 a ton, down sharply from $1,000 last fall. But phosphorus and potassium-type fertilizers, such as DAP, are still very pricey at $950 to $1,000 a ton, crop specialists say.
    
Bob Nielsen, extension agronomist at Purdue University, still thinks soybeans offer a better return, considering current prices and planting costs. But if USDA forecasts smaller-than-expected corn seeding intentions on March 31 report, he said, the corn market could rally and swing back more farmers to plant corn. Farmer hopes that corn demand to produce ethanol will rise this year are another wild card. 
    
“These guys have to make a decision pretty soon. The end of the month is their last opportunity to see a change in prices that would sway them one way or the other,” Nielsen said.
    
Wheat trading was a sideshow most of the week considering the fireworks in corn and beans. But traders continue to nervously eye the weather. Drought is pressuring the hard wheat crop in the southern Plains — about half U.S. wheat crop — while flooding may threaten the prime spring wheat area in the United States, the Red River region of North Dakota.